I have always said that traders should set specific goals when we operate in the markets, because it is important to set ourselves a goal and know where we want to go.
The importance of setting take profit and stop loss points
Of course, setting take profit and stop loss points are part of the normal procedures that we must follow in trading (be it crypto, commodity, stocks, etc.); because we must be very aware that everything in the market works based on fluctuations that are given by the law of supply and demand, and because if we do not set defined points, clear objectives, and specific goals, we will never be able to succeed as traders.
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Because being a trader is like anything else in life, that is, it is something that requires us to know where we are, where we came from and where we want to go in order to have consistent profits and success. Because saying "I want to get rich through trading" is not valid, other than as a general objective, but said general objective is still something vague and imprecise if we do not set the specific way in which we want to achieve it.
It is there when we must ask ourselves the right questions, such as "How much money do I have to trade?", "How much should I risk?" "What kind of trader am I and how risk averse am I?" "How much money do I need to have, or what conditions must be met so that I can feel rich and consider myself as such?"
I know they seem like silly questions or, some of them, too obvious, but they are things that many novice (and sometimes not so novice) traders forget when they are trading the markets; And believe me, they are really important questions that we must ask ourselves, because from the answer we give to each of them, the specific actions that will lead us to achieve success in trading will emerge in our minds.
Being very clear, in addition, that trading is a very risky business and that we must be fully aware that it carries the potential of losing all the money at stake, the trader who asks itself the right questions before starting to operate has enormous possibilities to achieve your goals, even in less time than usual; because it knows precisely what it wants to achieve and this allow it to visualize the best way to achieve it.
In view of everything said so far, a trader will know how to properly set Take Profit points, to take its profits on time before the trend or market situation becomes adverse, and it will also know how to set Stop Loss points, to cut losses on time, before they turn into chaos for its trading capital.
A reasonable Take Profit and Stop Loss level in most cases (especially if you are not a very experienced trader) is in a 1:1 risk-reward ratio. But if you are an expert trader, who has been in the market for a long time, you know the asset you are trading and you know very well what you are doing, then it will be possible for you to use a ratio of 2:1 or 3:1 among others.
Because the Take Profit and Stop Loss ratios are nothing more than the degree or level of risk-benefit or loss-benefit that we are willing to assume in the market at a specific moment, it is that simple.
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In the Crypto Market
As I think I have said many times, I have been operating in the cryptographic market for more than 8 years; and that is why all these things that I have mentioned to you, and everything that I explain to you regarding trading, I have learned through the years, based on effort, trial and error, and the truth is that I wish someone had explained them to me on this way (as I explain it to you) when I started trading, because if so, my learning would have been much easier.
In any case, learning is learning, however it happens, and in this regard there are a couple more things that I would like to explain to you for now, one of them is the importance of choosing cryptocurrencies with a high level of liquidity, and the other is knowing how to define what do we most want to obtain through our trading (cryptocurrency or money).
The liquidity of the cryptocurrencies that we choose to trade is important, because it will give us peace of mind when operating in the markets, that is, it is a way of reducing the inherent risks of a market as highly volatile as that of cryptocurrencies in general. Because trading with Ethereum (for example) is not the same as trading in a cryptocurrency that is ranked 900 by world capitalization ranking. Simply, in the second case, we are running a greater risk of losing everything invested in the event that everything goes wrong in the market for said cryptocurrency.
But in the case of Ethereum, even if the trading operation could turn against us in the short term, we know that it will only be a temporary matter, and that at some point the trend will change and we will get our money back again (and we may even win if we wait long enough).
But with a cryptocurrency that does not have a sufficient level of liquidity, we expose ourselves to being in limbo when it comes to wanting to sell because its price has plummeted. Because nobody will want to buy a cryptocurrency that is going down the drain nor that they sell it to 1 cent; which will end up finishing off the little liquidity it has had, leading its traders to bankruptcy.
So we need to very aware of this subject about liquidity in trading in order to be successful traders.
Now, regarding the other important point that I mentioned a while ago, we must know how to define what we most want to obtain through our trading (cryptocurrency or money). Because if it is only money, we must almost necessarily operate cryptocurrencies in the Spot market, and buy at the minimum possible price points and sell at the maximum possible price points.
Of course, no one, no matter how good a trader, can fish every last dollar in the market, nor save themselves from occasional losses, but their risk management will come into play there and what we talked about a while ago regarding the Take profit and Stop Loss levels
But if it is cryptocurrency that we want to obtain, then we will dedicate ourselves to buying when the market is at the lowest possible points and we will not sell until very high points of the market, when indicators such as the RSI say that the market is overbought, and to make For this, we must look at graphs in daily, weekly and monthly time frames.
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Basically, what we are talking about here is we need to know what exactly we want to preferentially accumulate, I mean one of the two things (money or cryptocurrency). Because in function of that is we can define whether we will be traders, or if we want to be investors.
Personally, I like to be both (trader and investor) at the same time. So I always trade based on short periods (minutes, hours, etc.), but I also allocate a part of my capital to investment; Therefore, a percentage of the profits that I am obtaining with my trading I am buying in highly liquid cryptocurrencies that I buy at their lowest possible prices, and I leave them in my wallets with a view to the long term.
But all this that I mention to you I do it because I have learned the importance of having fully defined trading objectives.
What do you think about the topic discussed? Please comment.
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